The Paradox of Commoditization

Gordon Cook cook at cookreport.com
Thu Apr 10 15:48:40 UTC 2003


Hi David Bigge and Peter Galbavy, Peter K and James St Clair

David's point first.....

of course people will pay for convenience and will pay for phone 
service.  phone service is not going away and bankruptcy won't make 
the lecs go away.  bankruptcy will transform them  (at least i hope 
it will).  My point was not intended to be JUST VoIP....although VoIP 
is, i believe, the current most powerful force driving 
commoditization and the rate at which it is being adopted will make a 
bad situation much worse for the LECs.

The future, in addition to a commodity end-to-end IP net where 
everything rides IP as an application is in areas like linux and open 
source.  What fascinates me is that I see interesting evidence that 
IBM gets the hypothesis I laid out.  Everyone knows the huge amounts 
IBM has invested in linux and i was also aware that IBM  was 
positioning itself in the user services and education area.

At VON i got first hand evidence of this.  There was an IBMer from 
the IBM Institute for Business Value in Chicago on one of the panels. 
Afterwards I grabbed him and we talked one on one for 90 minutes. 
ABSOLUTELY AMAZING.......  if there is such a thing as an 
Isenberg-Googin-Cook school of thought, he is a full fledged 
member...  IBM ....big huge.... former mainframe.... now 
decentralized.  Plunging head long into customer education..... IBM 
GETS IT!

Customer education, consulting, and services is the area that will 
stay solid and likely grow.  Virtually everything else will shrink. 
Will it shrink by another million in the US?  It could but it will 
likely take a few more years.  My point in the essay was to encourage 
folk to think about the commoditization dynamic.  I had not thought 
about it in quite the same way myself before.  no one can predict 
what the time table will be.

Telecom and IT won't go away, but they will never in the future 
operate with anything like the same economics and employment patterns 
that they did as recently as 2 or 3 years ago.

Peter K's point

As for sounding like David Isenberg.  Absolutely.  And Roxane Googin 
as well.  the net paradox URL cited is as much googin as isenberg. 
Apparently at the spring VON 2002 Isenberg, Googin, Anders Comstadt 
of Stokab  the municipal dark fiber net in stockholm which is making 
a profit, and Tim Horan of CIBC had a panel in a breakout room with 
15 people in the audience.  This year at 5pm april one the same four 
were in the main auditorium talking to an audience of about 800.  the 
wisdom is spreading.

Peter  G's point,

sorry -- it was anything but a very thinly veiled jingoistic plug for 
'Made in USA'    It is my best attempt to report what i see.  And 
that is that " made in the USA" is to some extent history...like it 
or not.  This part is reality and inexorable.  It was a lament for 
the stupidity of my own government in the form of the FCC and the 
current congress critters for not understanding how the duopoly 
approach to broadband is cutting our own throats from the point of 
view leaving us with a second rate and expensive infrastructure upon 
which our future economic activity depends.  The same commoditization 
is affecting European telcos for sure.  The question is whether  the 
EC will deal with the dynamics more intelligently than we have in the 
US.

Question:  Is telecom a sick industry?  If it is, then you regulate 
it like the FCC has been doing in the US.  If on the other had you 
see telecom as a sick underlying infrastructure on which economic 
growth depends then you better think of doing treating the industry 
in a way different than you would if you were just trying to preserve 
share holder value.

Jim St Clair's point

largely agree.  Think big picture cost point of view.  To deliver 
voice as a telco what does your current infrastructure COST, and what 
is its complexity?  Give cost, complexity and debt service how can 
you compete against another player who is delivering its service via 
IP over gig E and doesn't need to buy all that complicated legacy 
switching gear.  And increasingly large enterprises are going to 
themselves deliver telecom services.  Case in point is IBM which on 
march 3rd i believe announced a huge project to globally convert to 
voice over IP.  To do so they will rip out token ring in all their 
offices and install ethernet at a minimum estimated cost of $100 
million.  the calculation is that they will save more than that on 
their phone bills and via use of SIP proxies they can get new 
features of tailorability in voice service that cannot be gotten from 
the PSTN

many thanks  - now back to your regularly scheduled operational issues
-- 
=============================================================
The COOK Report on Internet, 431 Greenway Ave, Ewing, NJ 08618 USA 609 882-2572
(PSTN) 703 738-6031 (Vonage) cook at cookreport.com  Subscription info & 
prices at   http://cookreport.com/subscriptions.shtml    The Paradox 
of Commoditization -
Studies in VoIP and Telecom Economics, April -June 2003,  128 pages 
available at
  http://cookreport.com/12.01-02.shtml and  http://cookreport.com/12.03.shtml
=============================================================




More information about the NANOG mailing list